Bank of America Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Bank of America (NYSE: BAC) fell more than 22% in early trading and remain down close to 15% after AIG (NYSE: AIG) filed a $10 billion lawsuit claiming fraud. Analysts also raised fears that the banker would need to raise cash.

So what: CNBC cited a report from analyst Mike Mayo of CLSA in which he contrasted B of A with Wells Fargo (NYSE: WFC) , reiterating earlier concerns the bank wouldn’t be able to cover obligations stemming from the mortgage crisis.

Now what: The report and the ensuing freefall felt eerily like 2008, when fear, leverage, and volatility torpedoed Lehman Brothers. To its credit, management didn't wait for failure to act, responding to Mayo's concern by denying that it would need to raise capital. Bank of America "can go to one dollar and it won't need to raise capital," a company spokesperson said on CNBC. Do you agree? Would you buy at these levels? Weigh in using the comments box below.

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hey guys! i added more BOA to my position @ $6.76. Why? Because BOA is largely a US consumer business model. THIS IS GOOD, considering other money center banks have large exposure to European markets. Of course, if recession hits US, BOA's future earnings will get hit.

I want to point this about the "anal-yst" Mike Mayo of CLSA. This guy had upgraded BOA and other financials JUST BACK IN JULY!! You read that right. And so now this dude downgrades?! After BOA drops 50%!! GIMME A BREAK!

1. The current stock price has nothing to do with whether the bank needs to raise capital. Everyone does understand this right? BofA could have $10 billion in cash and the stock could be at $20 or at $1 it still would have the same $10 billion in cash. The only difference the stock price makes is if the bank wants to raise cash by selling equity.

2. Having worked for a competitor bank my 2 cents about BofA, there were multiple studies done of BofA versus it's peers (Wells, BB&T, Citi, JP Morgan, PNC, SunTrust, etc.) specifically in the small business arena and tied to customer satisfaction. I will tell you that by comparison BofA finished far behind usually in this order: 1. Wells Fargo, 2. BB&T or SunTrust and 3. PNC, etc. In terms of how knowledgable the bank employees were to level of satisfaction and whether they would recommend to others. Wells consistently beat everyone with BB&T and SunTrust coming up right behind. If you believe BofA is a consumer business model that spells problems. If BofA is a commercial business model then maybe it's not as big of a deal. Just food for thought.

Sending report...

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